RI DBR Lacks Power Over Lifespan’s Offshore Businesses
Tuesday, April 09, 2013
Fallout from the announcement that offshore insurers are responsible for the solvency and safety of Rhode Island’s primary healthcare systems continues to create concern throughout the healthcare and oversight community.
Primary medical support networks insure themselves - offshore
The announcement that the primary insurers for Lifespan, Women & Infant’s Hospital, Kent County Hospital and their medical support networks were held offshore drew surprise from legislators tasked with ensuring stability in the state’s healthcare system.
“It sounds very disturbing that they are utilizing offshore accounts and insurers,” said Joseph M. McNamara, Chair of the House Committee on Health, Education and Welfare. “It is more disturbing that these agencies that we set up to regulate them - the Department of Business Regulation (DBR) - have no power over them. I will be contacting them and asking them to look into the legality of the practice.”
The Department of Health (DOH) had no comment as to captive offshore insurers or to the threat to Rhode Island’s healthcare industry should there be financial issues with the foreign entities.
“This is a business regulatory issue rather than a public health issue, so I think it's outside the scope of the Department of Health,” said Dara Chadwick, Chief office of health promotion.
DBR has no power over captives
“The Department of Business Regulation (DBR) has no power over the foreign captive,” responded Jack Broccoli, Chief Insurance Examiner for DBR who is attending the National Association of Insurance Commissioners (NAIC) conference in Houston. “It isn’t a DBR issue, because we can’t regulate the companies. If it were a domestic insurer or captive, we could examine their assets and transactions. There are certain capital requirements that pertain to domestic insurers and domestic self-insured companies. With the captive or self-insured companies that are held off-shore, there are less stringent requirements and we have no ability to examine those assets or transactions. We receive a report from the actuary chosen by the company and they send an independent financial statement. We have no regulatory authority.”
NAIC did not have any statement due to the absence of its membership who were also attending the conference.
The medical services provider network is not a regulated industry.
“There is no jurisdiction over the hospitals,” said Broccoli. “If there was a regulatory network like there is with insurance companies, we could reach out to the captive and examine their financial transactions. There would be more transparency. There is little transparency with offshore captives.”
Lifespan Corporation and its affiliate agencies, encompassing Miriam Hospital, Rhode Island Hospital, Newport Hospital, Lifespan Risk Services, Rhode Island Hospital Foundation, Newport Professional Systems, Inc., Newport Health Foundation, Inc., as well as many other subsidiaries, partners and physicians groups are insured by a company owned by the parent Lifespan Corporation and domiciled offshore in Bermuda.
Lifespan captive created to stabilize malpractice expenses.
The main reason for the creation of Lifespan’s captive insurance agency, according to a statement released late yesterday afternoon from the organization was to stabilize spiraling expenses related to malpractice insurance.
“Like many other hospitals and academic medical centers, Lifespan manages its malpractice insurance program through a captive insurance company. This company was formed more than 20 years ago as a way to stabilize spiraling expenses related to malpractice insurance. Rhode Island Hospital created this company in Bermuda, which had then and still has the largest number of captive insurance companies, for a variety of reasons, including Bermuda’s expertise in providing management and an appropriate and diligent regulatory environment.”
The release also noted Bermuda’s stringent regulation of its insurance companies, including its captive programs. The Bermuda Monetary Authority, the island’s regulatory agency is responsible for overseeing its insurance industry.
“Self-insurance programs encourage companies to manage their resources effectively and to focus on loss prevention. Lifespan's emphasis on patient safety has helped moderate the costs of its malpractice program. Lifespan uses an independent actuary to determine the appropriate program funding, which is based on Lifespan’s size, risk, claims experience and other factors. This assures that Lifespan has sufficient assets in the company to pay claims," Lifespan representatives said.
Lifespan has made no determination at this time as to pending cost reductions in light of financial shortfalls announced in March.
